Market Equilibration Process Paper
Market equilibrium is the point in which industry offers goods at the price consumers will consume without creating a shortage or a surplus of goods. Shortages drive up the cost of goods while surpluses drive the cost of goods down, finding the balance in the process is market equilibrium. The concept is derived from combining equilibrium price and equilibrium quantity to yield the equilibrium of a specific market. Changes in the determinants of demand, such as how much the product sells and the price of the product can affect the equilibrium of a market. Changes in determinates of supply can also affect a specific market. Supply determinates, such as taxes and subsidies, production techniques, and prices of other goods can cause a specific market to decrease or increase in supply, resulting in changes of equilibrium quantity.
With all the commotion going on in the Middle East and the ever increasing demand for Oil by countries such as China and the U.S it is very easy to see why price of crude oil and gasoline keeps climbing. According to Rodney Schulz of Schulz Financial, “One may argue that the oil market is not efficient because a few large players, such as some of OPEC’s largest producers, have the ability to move prices. And that is true, as well as the fact that insiders in those organizations can take advantage of certain information”
He stated further that Looking at the oil and gas industry, one immediately finds evidence of market efficiency with oil and gas prices. First, if the market were not efficient, firms that did nothing but trade oil and gas futures would be as ubiquitous as independent producers. Moreover, they would perform as well in down markets as in up markets. This would be an easy business to start, as there are almost no barriers to entry. However, firms that do nothing other than trade oil and gas futures are practically nonexistent.
A good example of a market equilibrium...
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